If you’re ready to apply for a home loan, you’re probably interested in ways to get the best mortgage rate. Buying a house involves more than snagging the best price. The rate on your home loan determines your monthly payment. For this matter, getting a low rate increases purchasing power. How do you achieve this? Are there tricks? Here are seven simple steps to get the best mortgage rate.
1. Watch Mortgage Rates
Mortgage rates constantly fluctuate, and if you want to get the best mortgage rate, wait until rates fall. A bank or realtor can keep you up-to-date on the latest market trends. But to take advantage of falling rates, you have to be ready to purchase when rates hit all-time lows.
2. Pay Your Bills on Time
Maybe you have enough money to afford a home loan payment. Unfortunately, if you’ve been late on a few bills, a mortgage lender may charge a higher interest rate on your home loan. And depending on the severity of your lateness, a lender may reject your home loan application. Getting a mortgage isn’t as simple as renting an apartment. For this matter, your credit needs to be in good condition.
3. Pay down Debt
If you owe high balances on your credit cards or have several other loans, mortgage lenders may see you as a risky applicant. And as a risky applicant, they may charge a higher interest rate. There is a way around this hurtle. Make a plan to pay off your credit cards and other loans. Keep credit card balances at least 30% below the limit.
4. Go with Your Current Lender
If you’re thinking about refinancing a mortgage loan, it helps to contact your current lender first. As an existing customer, your current lender may offer the best interest rate. This is how they compete with other banks. If you’ve been a loyal customer, they’ll want to retain your business.
5. Shop around
Not that other banks won’t offer a better rate. Whether you’re refinancing your mortgage or purchasing a new house, always shop around and compare loan rates. You don’t have to request quotes from 10 different banks. Understandably this is tedious and time-consuming. However, you should make an effort to speak with at least three different banks. Quotes are free and there’s no obligation.
6. Reduce Your Mortgage Term
A 30-year mortgage term may be comfortable for your finances, but if you can afford to pay more each month, consider a 15-year or a 20-year mortgage term. The shorter your home loan term, the lower your mortgage interest rate. Plus, choosing a shorter mortgage term reduces how much you pay in interest. A lender or broker can crunch the numbers and compare monthly payments among various terms.
7. Increase Your down Payment
Today, buying a home only requires about 5% down. But if you want to get a low mortgage rate and save money on interest, consider increasing your down payment. There are no hard and fast rules, but a down payment between 10% and 20% of the purchase price may move a lender to reduce your rate.
Mortgage rates are low and now is the best time to jump into homeownership. And if you have an existing mortgage, getting a better rate can reduce your current home loan payment. What additional advice can you offer for snagging a low rate?